CIT Group Inc. filed for bankruptcy protection over the weekend, a move that will likely save the company but also result in a multi-billion dollar loss for taxpayers.
After months of negotiations with creditors and federal regulators, the business-financing giant announced it had submitted a Chapter 11 prepackaged bankruptcy plan.
Under the plan, bondholders will receive 70 cents for each dollar of liabilities. Overall, the company owes $64 billion to creditors and has $70 billion in assets, the New York Times reported. Roughly $800 million in debt was due to mature over the weekend and early this week.
Without a prepackaged bankruptcy, lenders stood to make back only seven cents on the dollar, CIT executives told the paper.
But while the filing is good news for most bondholders, American taxpayers stand to take a complete loss on the $2.3 billion that the Treasury Department invested in CIT through the Troubled Asset Relief Program. In exchange, CIT gave the government stock and warrants, all of which are likely to become worthless as a result of the bankruptcy reorganization.
CIT's bankruptcy marks the fifth largest as measured by assets in American history and the largest since federal regulators seized Washington Mutual last year.
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